DentalReviews.news: Dental Practice Sales Market Trends
As always, ask five different people about the status and trends of the dental market and you will get five different answers. However, our considered Pluto Partners view is this:
There is demand for NHS practices and groups now, and for quality private practices
Buyers/Investors have no intention of slowing down the market.
In the short to medium terms – and in order to maintain business value and minimise the risk on investment and move the industry forward – we are seeing more deals being suggested with a greater level of deferred prices compared to last year; with the deferment linked to revenue and earnings before interest, taxes, depreciation, and amortization (EBITDA) level, particularly for private practices
In terms of what buyers are prepared to pay for dental practices, ultimately demand and desire to acquire dental practices for long term investment will also help drive valuations
Individual buyers with record low rates and the huge liquidity boost of Government backed loan facilities coming on stream, make this a great time to buy.
The current climate will absolutely affect dental practices’ financial performance, but investors and buyers will probably discount the pandemic’s market effect as exceptional and focus instead on pre-COVID performance and look at 2019 figures.
We believe that independent dentists acquire practices with a different agenda to dental corporates. They are more often prompted by a need for long-term security with control and not so focused on the exit multiple which often drives corporate growth strategy.
What we see happening now – and possibly in the short term – is that buyers and investors are looking at the pre-COVID financial status and introducing a deferred payment period for a certain amount of the price to allow the business to recover.
Taking all this into account we see no tend towards an imminent drop in dental practice financial values. We expect deal structuring on private practices to adapt, with a higher proportion of the agreed price being deferred over a period of time, as a way to maintain and maximise practice values and minimise the buyer’s risk on investment.
We looked at our pipeline from five years ago in 2015 and the average sales level was 4.9 x EBITDA. During the last six months of 2019 the average sales figure compared with EBITDA had risen 7.5 x. However, we have been involved in deals achieving 8, 9, and even 10 x EBITDA in the latter part of 2019, with corporates very active on the acquisition front.
Here at Pluto Partners we have a pipeline of 40-50 deals at any given time, and we have seen a 25% increase in new deals being introduced to the market. 70% of dental practices sold in the last 18 months were purchased by regional operators such as local multiple practice owners and independent buyers, and we predict that number to increase to 85-90% in the short- to medium-term.
And the market remains very active. We experienced a 19% increase in the number of independent buyers enquiring about dental practice purchases over the last nine weeks, took offers on six practices on the week commencing 1st of June, and negotiated offers at 8.4 x EBITDA on a group of private practices with a combined EBITDA in excess of £800K.
Pluto Partners’ expertise can help maximise the value of your dental practice, Director and Partner Max Bazzucchini is waiting to hear from you.